Small Business Bookkeeping Explained Part 4: Your Guide to GST
Welcome to Part Four of our series that explains simply and in plain english everything that you need to know about small business bookkeeping. This week we’re going to take a closer look at GST.
If you haven’t already, take a look at parts one, two and three of the series, BAS obligations of a small business owner, Pay As You Go Withholding and Instalments and Tax Deductions.
What is GST & Do You Need to Register?
If you run a small business that offers goods and services, you may need to register for GST, the Australian Goods and Services Tax. But at what stage of your business, do need to start charging your clients and collecting GST?
If your gross turnover for the financial year is $75,000 or more ($150,000 or more for non-profit organisations), or you provide a taxi service through ride sharing, you’ll need to register for GST. However there are still some exceptions.
If your business sells the following, your business may be exempt as GST-free sales:
- Staple foods such as fruits and vegetables, meats, dairy, spices and sauces
- Certain education resources and courses
- Certain medical and healthcare products
- Financial products and services
The ATO has a full list of GST-free goods and services for you to double check if you’re required to register.
How to Register for GST
Once your business hits the above targets, you’ll need to register for and collect GST.
You’ll have 21 days to register for GST after you start working or hit those financial targets. If you don’t, you may face financial penalties from the ATO including paying the GST you haven’t charged out of your own pocket.
It’s recommended that if you’re waiting for the $75,000 (or $150,000) threshold that you check each month what your annual invoicing is up to so that you can get in before that 21 days is up.
To register for GST, you’ll need an ABN (which you can get online and is free of charge). But if you’re registering as a company, you’ll need an ACN before applying for you ABN – which can also be done online.
It’s just as simple to register for GST online through the ATO Business Portal.
This is also where you’ll submit your BAS – which you need to start doing once you’re registered.
You’re Registered for GST…Now What
A few things are going to have to change for your business practices once you’re registered for GST, including:
- Your invoices will now be Tax Invoices. They must be formatted correctly for you to be able to claim full tax entitlements and include:
- having the words ‘tax invoice’ as the title
- the sellers identity and ABN
- the date issued
- A description of items or services sold
- Pre-GST price, amount of GST and total cost
- You’ll need to add the cost of GST to your goods and services you provide, collect and not spend this to pay it to the ATO at the end of the financial year.
- You can claim the GST that you pay on your business expenses. So when you’re buying stationary, training or consulting services, keep those receipts that tell you the GST amount!
- You need to submit Business Activity Statements to the ATO – which is where you’ll claim the GST you collected and what you paid on your business purchases. If you paid more GST on business expenses than you collected, you may be eligible for a GST refund. Learn about BAS here!
Calculating the GST that you need to charge is easy:
Your Price x 1.1 = GST-Inclusive Price
So if you’re selling a product for $100, after you’ve registered for GST you’ll need to charge your customers $110.
Can I Register for GST When I don’t NEED To?
You certainly can! There are a few advantages of registering for GST before it’s a requirement.
The biggest reason that you would want to register for GST early is if you have a lot of business expenses and want to claim GST credits.
Alternatively, charging for GST shows your customers that you’re big business and your annual turnover is high. Particularly if you’re running a B2B company, this is going to show your clients your worth.
If you register for GST without it being a requirement, then you’ll simply have some additional paperwork and bookkeeping to take care of it. But if you’re using a bookkeeping software such as Xero, it can take care of a lot of these calculations for you.
If you’ve still got questions on GST, please don’t hesitate to get in touch with our friendly team! We can walk you through everything you need to know, simply get in touch online or give us a call on 1300 900 938.